European Online Travel Agencies

With solid growth of 8.2% in a year when the total market
declined by 11%, European Online Travel Agencies are clearly the
fastest-growing distribution chan­nel in Europe. This strong growth, coupled
with imminent market matu­rity in the U.S., has generated an intense focus on Europe among OTAs and investors. The
large and fragmented lodging sector in particu­lar offers tremendous
opportunity that is still largely untapped. By nature of the large por­tion of
independent hotels in Europe, the need for aggregation is stronger than in the
U.S. OTAs would assuredly command a larger share of the total market in Europe
than they do in the U.S. eventually. However, they are not the only aggregators
in town.

Tour operators are
powerful incumbent inter­mediaries in Europe, and they are not about to
surrender the online world to OTAs. And while tour operators booked
substantially less online (€8.9 billion) in 2009 compared to OTAs (€23.6
billion), total tour opera­tor gross bookings represented €49 billion in 2009.
Tour operators are therefore more than twice the size of OTAs. But the ratio of
tour operators to OTAs is declining every year. In 2006, tour operators were
3.6 times the size of European online travel agencies; by 2012, the multiple will
drop to 1.6.

Looking at European Online Travel Agencies Compare from a Global Perspective

In the U.S., the ratio
is entirely different: OTAs will be roughly 3.5 times the size of tour
operators in 2010. Will the European landscape ever get to that extreme? It may
eventually, but not within the next five years. Even still, the OTA focus on
Europe is well-aimed. Over the next few years, OTAs and tour operators will
sell about 20% of total U.S. travel bookings; in Europe, that portion will be
30%. Ultimately, the opportunity for intermediaries is larger in Europe, both
in terms of actual size and in the percentage of total bookings.

While comparison
between OTAs and tour operators is valuable when considering the very broad
strategic landscape, on the day-to-day, OTAs and tour operators do not compete
so directly. Today, OTAs are generally the go-to source for individual travel
components and familiar destinations, whereas tour opera­tors specialize in
more complex and long-haul trips. Recessionary trends plainly favor the for­mer
versus the latter, and OTAs are expected to continue receiving a
countercyclical boost through 2010 and into 2011. Moreover, hotels – not
packages – are where OTA growth is concentrated.

The main beneficiary, and perhaps driver, of OTA hotel growth is
Priceline’s Booking.com. In 2008, Booking.com repre­sented 27% of the share
among pan-European OTAs. In 2009, it pulled ahead of Expedia to take the top
spot, capturing an additional six points of share from the others to reach 33%.
Booking.com’s share winnings were a result of extraordinary 37% growth over
2008, and it does not appear to be losing steam. In the first half of 2010,
priceline’s non-U.S. bookings (the vast majority of which is Booking.com)
skyrocketed another 69%. Booking.com’s com­bination of a very broad range of
properties, a simplistic website interface, and aggressive online marketing is
proving to be unbeatable for other European online travel agencies, at least
for now.